This is time for bargain hunting in the stock market. The domestic equity market has put up pre-Diwali sale for investors to buy expensive stock cheaper, said Ridham Desai, MD, Morgan Stanley India.
Desai, a Dalal Street veteran, said uncertainties like these offer opportunities to long-term investors to enter the market.
His views came even as the domestic market underwent a painful correction since August 2018. Equity benchmark Sensex and Nifty are down over 12 per cent since August 31.
A whirlpool of factors including a falling rupee, rising crude oil prices, spike in US bond yields, sustained outflows of foreign institutional investor money and uncertainty over the forthcoming elections have mainly dented market sentiment in the recent past.
In an exclusive interaction with ETNow, Desai said the point of maximum fear is also the point of maximum return. He said equities are the longest duration asset class in the world and, therefore, one should enter the market with a long-term investment horizon.
“Do not think of making money in a week or a month. This is an opportunity to buy stocks at attractive prices. The time has come to pile up all the stocks that you wanted to invest in for months,” he said.
Desai believes a large part of damage to emerging markets has already happened and it is now shifting to developed markets.
He said in recent times fear of liquidity tightness has haunted the market. “The fear of liquidity is misplaced, and growth should be fine,” Desai said.
Morgan Stanley sees Sensex at 42,000 by September 2019. However, Desai said high crude oil prices and a weak rupee are key near-term risks to the domestic market. He believes oil will pose a big risk to the Indian economy should it rise to $90-95 a barrel level.
“Expect growth to be back on track as the festive season is delayed this year,” said Desai. He said other key pillars of growth and all indicators look fine to him.
“Economic growth should translate into better earnings,” he said.
Morgan Stanley believes corporate banks should start seeing better headline numbers in a quarter or two. Commenting on the forthcoming earnings season, Desai said earnings numbers of corporate banks should be better compared with non-banking financial companies.
Companies under Morgan Stanley’s coverage may report revenue growth of 19 per cent, while profit may dip around 1 per cent. Margin of the coverage universe may fall by 259 basis points, he said.
Morgan Stanley believes energy and IT firms should report strongest YoY growth this season, while banks and telecom revenue may slow down on a YoY basis.
FIIs have sold shares worth over Rs 15,000 crore so far in October. “Foreign investors are responding to global cues at present. Robust inflows to mutual funds have surprised us and they may continue,” Desai said.
Investors should be selective on the NBFC front, he said. Desai likes NBFCs that have strong equity and the one that has slightly better liability franchisee.
He said select auto names, which are mainly exporters, should do well as thanks to a weak rupee. He advised investors to bet on underperformers with good earnings.
Source: Economic Times